Lehman looks to transfer assets to avoid up to $283 million in taxes

By Caroline Salls

Pittsburgh, July 29 - Lehman Brothers Holdings Inc. requested court approval to enter into a cost-sharing agreement and asset-transfer agreement with Lehman Brothers Inc.'s trustee to avoid up to $283 million in federal, state and local income tax liabilities, according to a Wednesday filing with the U.S. Bankruptcy Court for the Southern District of New York.

According to the motion, Lehman Brothers Holdings, subsidiary Lehman Pass Through Securities Inc. and Lehman Brothers currently hold at least 1,600 residual interests in real estate mortgage investment conduits.

The holding company said it wants to transfer the residuals under an agreement with Citibank, NA.

Under that agreement, Citibank has agreed to assume the tax liabilities associated with the residuals in exchange for a $24 million payment.

As long as the Lehman entities continue to hold the residuals, the company said they incur income taxes on them, even though they do not receive any economic returns from the assets.

Specifically, the Lehman Group would incur $119 million to $283 million in tax liabilities from March 31 through 2014 if the transfer agreement is not approved.

In addition, Lehman Brothers Holdings and the trustee are seeking court approval to enter into an inter-estate cost-sharing agreement under which they will allocate responsibility for the $24 million payment to Citibank.

Based on current estimates, the holding company said 70% of the payment will be allocated to the Lehman Brothers Inc. estate and the remaining 30% will be divided between the Lehman Brothers Holdings entities.

A hearing is scheduled for Aug. 18.

New York-based Lehman Brothers Holdings was the fourth-largest investment bank in the United States. The company filed for bankruptcy on Sept. 15, 2008. Its Chapter 11 case number is 08-13555.

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